Interactions of Pseudomonas exotoxin (PE) with mammalian cells were studied. PE binds to cells via the alpha2-macroglobulin receptor (alpha2- MR). PE but not PEglu57 bound to affinity purified alpha2-MR. The addition of receptor associated protein (RAP) blocked PE-mediated toxicity but did so without competing for the same binding site. Binding to the alpha2-M receptor on cells is followed by endocytosis. Within cells PE is cleaved between arg279 and gly280 to produce an N-terminal fragment of 28 kD and a C-terminal fragment of 37 kD. A protease with this activity was prepared from beef liver (BLP). In biochemical assays, the cleavage of PE by the BLP was optimal at pH 5.5, was inhibited by EDTA or p- hydroxymercuribenzoate and had a Km of approx 1.0 mM. When PE was cleaved by the BLP and then added to cells, cleaved toxin killed cells with greater rapidity than native PE. Cleavage of PE by BLP resembled the activity of a furin-like protease. To confirm this, PE was incubated with recombinant human furin. Furin-mediated cleavage of PE was indistinguishable from the activity seen with the BLP. The beef liver protease and furin also cleaved diphtheria toxin. In separate experiments, a rate-limiting step in toxin action was discovered. After cleavage of PE by cells, residues at the N-terminus of the 37 kD C-terminal fragment were shown to interact with an unknown cellular component in a saturable manner. To demonstrate this, excess PEdelta553 was shown to compete for the toxicity of native PE. In contrast, the addition of excess PE harboring mutations at residues 281, 284 or 289 competed much less well. Competition, which was not at the level of surface binding, required intracellular toxin cleavage but did not require the presence of REDLK at the C-terminus.